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TDS against expenses
Accountancy
Pls explain this concept. Refer image.
Answers (4)
Ok sir, below is what I understood about TDS. Pls check it. TDS against income means portion of income not received from the source. i.e., it is held by the investee E.g: We invested in debentures of a cmpy and we are entitled to interest of Rs. 10k. TDS on that is Rs.2k and the cmpy held it . For us, the receipt/inflow is 8k. But we'll show in CFS (10k-8k). Gross value - TDS. Though presentation wise TDS looks like a cash outflow, it is in fact not a cash outflow. TDS against expenses means portion of expenses not paid to the investor. i.e., held by us. E.g: Someone invested in debentures of our cmpy and he's entitled to int. of 10k. TDS on that is 2k. For us the payment/outflow is 8k. But we will show in CFS the gross payment - TDS. Here, TDS looks like a cash inflow since it reduces the payment. But it is in fact not a cash inflow Conclusion: Though TDS does not result in any inflow or outflow it is shown like an adjustment to the income/expense concerned. Now ,should I write TDS as inflow/outflow or no inflow/outflow? Study material is inconsistent . Pls refer the images below.
Thread Starter
Sibi SrinivasanOk sir, below is what I understood about TDS. Pls check it. TDS against income means portion of income not received from the source. i.e., it is held by the investee E.g: We invested in debentures of a cmpy and we are entitled to interest of Rs. 10k. TDS on that is Rs.2k and the cmpy held it . For us, the receipt/inflow is 8k. But we'll show in CFS (10k-8k). Gross value - TDS. Though presentation wise TDS looks like a cash outflow, it is in fact not a cash outflow. TDS against expenses means portion of expenses not paid to the investor. i.e., held by us. E.g: Someone invested in debentures of our cmpy and he's entitled to int. of 10k. TDS on that is 2k. For us the payment/outflow is 8k. But we will show in CFS the gross payment - TDS. Here, TDS looks like a cash inflow since it reduces the payment. But it is in fact not a cash inflow Conclusion: Though TDS does not result in any inflow or outflow it is shown like an adjustment to the income/expense concerned. Now ,should I write TDS as inflow/outflow or no inflow/outflow? Study material is inconsistent . Pls refer the images below.
When you deduct tds on expenses, they would be paid to the government. So the entire amount is an outflow. If at all some amount is outstanding at year end, it would be adjusted with changes in working capital. To treat TDS on expenses as inflows is not correct. When you earn income from investments, you would show gross amount as inflow and from that show taxes paid as outflow (similar to the logic applied in cash flow from operations. )